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How did they get the answer to the total overhead cost assigned to audit and tax? Problem 18-5APolk and Stoneman is a public accounting firm
How did they get the answer to the total overhead cost assigned to audit and tax?
Problem 18-5APolk and Stoneman is a public accounting firm that offers two primary services, auditing and tax return preparation. A controversy hasdeveloped between the partners of the two service lines as to who is contributing the greater amount to the bottom line. The area ofcontention is the assignment of overhead. The tax partners argue for assigning overhead on the basis of 40% of direct labor dollars,while the audit partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for purposesof analysis and comparison. The following overhead data are collected to develop the comparison.Expected Use of CostDrivers per ServiceActivity Cost PoolsCost DriversEstimated OverheadExpected Use ofCost DriversAuditTaxEmployee trainingDirect labor dollars$216,000$1,800,000$1,050,000$750,000Typing and secretarialNumber of reports/forms76,2002,5008001,700ComputingNumber of minutes204,00060,00025,00035,000Facility rentalNumber of employees142,5004018TravelPer expense reports81,300Direct56,00025,300$720,000Your answer is correct.Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services (audit andtax) of Polk and Stoneman.AuditTaxTotal overhead cost assigned420000300000Step by Step Solution
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